Back from the brink

Back from the brink

Four years after Cab Automotive's near collapse, managing director John Faulkner is successfully leading the car parts firm into annual revenues of nearly £40m, as BQ reports.

It was a dark, cold and damp morning on Friday 12th December 2008 as John Faulkner arrived at Cab Automotive’s factory in Tipton, in the Black Country. But the atmosphere was about to get much chillier during that fateful day’s meeting with the company’s bank manager.

“The economy was faltering, and the bank had been coming in to see us every two months, then every month,” recalls John, now aged 55.

“We sat down as usual and tried to show them our books, but on that day they simply said: ‘We don’t need to see your data because your customers are also our customers and we know where the automotive sector is heading.’ Basically, the message was: ‘We want our money back within 14 days.’

At the time, Cab Automotive’s combined overdraft and loans amounted to around £1m, and the withdrawal of these debt facilities coincided with a sudden freeze in orders from the firm’s clients, resulting in a cash flow crisis.

“The bank was pretty accurate with its information,” admits John, “because from two weeks before Christmas until two weeks after, no-one ordered anything. “With zero revenue and the bank wanting its money back, at one memorable stage we had just £50 left in the bank.”

Back in 2008, as much as 93% of Cab Automotive’s work had been with Jaguar Land Rover (JLR) and, in retrospect, with the car maker struggling to cope with its own major wobbles, the knock-on effect for such a dependent component firm was inevitable.

John says: “JLR had been our main work, but suddenly the portcullis had come down. It was like tumbleweed blowing through the shop floor – no work at all. To start with, we were in a bit of a daze, asking ourselves ‘what does this mean?’ and ‘surely the bank won’t really take the money back’.

“But the realisation soon came that they were serious and, because this money represented 100% of our working capital, these were desperate times. Then the penny dropped that our usual orders had stopped, and it was a pretty awful feeling all round.”

John, who was general manager at the time, did not remain shell-shocked for long. He’d joined Cab Automotive in 2007 after 33 years with Land Rover, he knew that this was a time for difficult decisions and positive action.

“We took a view that we’d just created a new management structure within the company in 2007 and had had a good year with costs and quality. And in 2008 sales were good, with our JLR work going well. So we said to our management team, we either shut up shop or put up a fight.”

The fight started with an immediate survival plan. Cab Automotive accepted 12 voluntary redundancies and some 50 agency staff were laid off from a workforce of around 200. Next came a complex piece of accountancy from the company’s financial controller, resulting in John and the management team carefully talking to suppliers, customers and investors about outstanding invoices, revenues due and loans to somehow keep cash flows going.

“We sort of declared UDI,” remembers John, “and at one stage even considered whether we needed a bank, as we knew so much detail about our own finances.” Importantly, during what was a bumpy period, Cab Automotive “never missed a delivery” as it steadied the company to face the future.

They looked at all sorts of options, even developing marine seats for high-end leisure craft which, while they never went into production, taught Cab Automotive a lot about its capabilities.

It was during this time that John acted on a very simple but challenging option – to start insourcing various jobs that had previously been outsourced. One of the company’s main products was seats, assembled from various basic parts like steel, plastic, foam and coverings. Rather than just assemble the seat, John decided they would start to make each part from scratch.

“I started by looking at all the foam we used in head-rests and seats which we bought in from another company in Yorkshire. All those costs to the company making the foam, all the diesel spent transporting it to us, and all the stock we had to make sure we never ran out.

“In my mind, this equalled an opportunity for Cab Automotive and so I started to look at how we could maximise that. At the time, there was a massive influx in industrial machinery from firms going bust going up at commercial auctions, and I spotted a foammaking machine that had previously been used to make material for caravans.

“It was going for a bargain price and, because I had to act quickly, I ended up buying this machine on my own credit card. A bit of a risk, but I knew the machine was worth so much more, and if things didn’t work out I could have recouped my money several times by reselling it.

“I then went out and employed an expert to teach us how to make foam. Previously, we’d had up to £100,000 tied up in foam contracts – in terms of another company’s costs, transport and stocks. But by making the foam onsite, we removed all those costs, all that transport and all that need for stock.

“This resulted in only around £800 tied up in foam at any point. Obviously, the difference between £800 and £100,000 is huge in terms of operating costs. The machine I’d bought for the equivalent of a second-hand car was soon paying for itself every three days – and it’s been doing that ever since.”

John then insourced the laser cutting of steel, wood routing to cut car console profiles and welding. A significant step was buying an entire powder-coating plant at another commercial auction, this time for around the price of a new car. Today, albeit after various improvements, that same plant is worth upwards of £1m. “It wasn’t just about costs,” says John.

“That was part of it, of course, and we certainly thought we were putting our costs base right with all this insourcing.

“But what we didn’t really think about at the time was the extra value we were putting into our own work. Within 18 months, customers were suddenly realising that Cab Automotive was something different. We were not only supplying car seats but were making every part of those seats as well.

Foam, John explains, comes first in the seatmaking process, but it’s not necessarily the most profitable part. By adding the leather, vinyl and cloth, that’s when Cab Automotive began to not only make more money but also to build a stronger reputation for its products.

“Once we’d insourced the machinery and skills to manufacture the whole product, people started buying it all from us, leading to new orders for the parts involved, including the coverings and the assembly.”

By 2011, Cab Automotive’s resurgence led to John’s promotion to managing director, and he has continued to lead the company’s success. Annual revenues rose to £19m in 2011, increased again in 2012 and are climbing fast in 2013, with signed contracts meaning turnover will reach nearly £40m by 2014. After the temporary contraction in 2009, staffing at the company rose to 230 workers by 2011, was 310 at the time of writing, will be 350 by June and 400 by Christmas 2013.

“What was effectively a new product line meant new orders,” says John, “which allowed us to recruit people who could make the difference in quality, adding a real depth of skills to the company.

“The trick then was to go out to other big companies to convince them about what we were doing. “Another aspect we improved was our cost base, investing in lean training for our managers, looking at all sorts of areas like shop floor layout, stock control and so on, improving our financial performance.

“This approach worked hand-in-hand with our new depth of product, our skills and our widening customer base, in ever-increasing circles of success.”

Cab Automotive is now a first tier supplier to such names as JLR, Aston Martin, Bentley and a few other super car manufacturers. Its improvement has even resulted in ’JLR Q’ status – essentially a quality award marking the business as a highly-preferred supplier, creating what John describes as “a halo effect” in the automotive industry.

It also supplies the likes of Toyota and Honda through an array of other blue chip, first tier suppliers, such as Magna International. Current car products now include complete seats, centre consoles, gearlever gaiters, carpets, load floors, parcel trays and head linings.

“We’ve got the technology and now don’t have a problem getting the orders,” says John. “As an example, when we make a seat for Land Rover we now make 85% of it on one site from raw material. From metal welding and powder coating to cutting and sewing seat fabrics, and from making the moulded foam to the final assembly.

“We also have some major new contracts coming that I can’t talk about yet. But they’re with new blue chip customers, and they are high quality, complex contracts, adding value to components, getting involved in sequence supply and really moving up the food chain. We are not only a ‘just in time’ assembly plant, we are now one of the most diverse interior trim suppliers in the country.”

Crucially, Cab Automotive is now less than 60% reliant on JLR orders, and has plans to continuously diversify its order books. The company has also changed its entire banking ethic. John is tight-lipped about the identity of the bank that effectively dropped them in it back in 2008, but he’s quite happy to confirm that he, in turn, has since dropped that bank.

The company’s new banker is the Yorkshire Bank, who John describes as “very forward thinking and supportive”. Formed in 2005, Cab Automotive is still a privately-owned firm. Its chairman and majority shareholder is Brian Miles, with financial director Richard McCulloch also owning part of the company. John is fulsome in his praise of his bosses, for their backing, and of his managers and employees, for their hard work and belief in the company’s future.

“We truly believed our industry would recover and that we had a strong business case,” says John. “Individuals within the business injected enough cash for me to set a course for that recovery. Brian, the chairman, was very supportive of every step, and as we came across issues he’d give me the opportunity to pull on the 33 years experience I’d had at Land Rover.

“When staring defeat in the face I demanded and received 100% focus from 100% of our team. We started and are continuing our journey with that passion. They can say ‘we did that’, and the Cab Automotive philosophy of ‘The quality within’™ is now shining through.”